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Item 2. Management’s Discussion and Analysis

2025-06-09 compared with 2024-12-10 · 104 added, 122 removed, 71 unchanged (76% of the section changed)

9 unchanged sentences

Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

we are subject to risk as a result of our international manufacturing operations and are subject to the risk of doing business in foreign countries, particularly in China and Vietnam, which could affect our ability to manufacture or sell our products, obtain products from foreign suppliers or control the costs of our products;

we are subject to risk as a result of our international manufacturing operations and are subject to the risk of doing business in foreign countries, particularly in China and Vietnam, including risks relating to the impacts of tariff policies, which could affect our ability to manufacture or sell our products, obtain products from foreign suppliers or control the costs of our products;

a terrorist attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively impact our domestic and/or international operations;

our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates;

we have manufacturing and other operations in China which may be adversely affected by tariff wars and other trade maneuvers;

we have manufacturing and other operations in China, Vietnam, and other countries which may be adversely affected by tariff wars and other trade maneuvers;

our results of operations may vary widely from quarter to quarter;

2 unchanged sentences

some of our sales are to foreign buyers, which exposes us to additional risks;

we deal in countries where corruption is an obstacle;

we are exposed to U.S.

and foreign tax risks;

because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact our inventory levels and net sales;

1 unchanged sentence

our operations are substantially dependent upon key personnel;

technological change could negatively affect sales of our products and our performance;

cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations;

data privacy and security laws relating to the handling of personal information are evolving across the world and may be drafted, interpreted, or applied in a manner that results in increased costs, legal claims, fines against us, or reputational damage;

our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property rights, our competitive position may be harmed;

We are implementing a new enterprise resource planning system;

We have identified a material weakness in our internal control over financial reporting;

we deal in countries where corruption is an obstacle;

we are exposed to U.S.

and foreign tax risks;

we may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims;

4 unchanged sentences

adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition or results of operations;

rapid technological change could negatively affect sales of our products, inventory levels and our performance;

the other factors referenced in this Form 10-Q, including, without limitation, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the factors described under “Risk Factors” disclosed in our fiscal 2025 Form 10-K.

We believe these forward-looking statements are reasonable;

however, you should not place undue reliance on any forward-looking statements which are based on current expectations.

however, you should not place undue reliance on any forward-looking statements that are based on current expectations.

Furthermore, forward-looking statements speak only as of the date they are made.

6 unchanged sentences

Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, transportation, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry.

In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.

In addition, we supply federal, state and local governmental agencies and departments, including fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.

Internationally, we sell to a mixture of end-users directly and to industrial distributors, depending on the particular country and market.

1 unchanged sentence

The Company’s strong market position across its focus product categories and markets is supported by continued and increasing investment in its global footprint, particularly owning and operating its own manufacturing facilities, acquiring complementary companies or products that expand and enhance product offerings and/or geographic customer territories and investing in sales and marketing resources in countries around the world.

We believe that ownership of manufacturing is the keystone to building a resilient supply chain and providing high-quality products to our customers.

Having seven manufacturing locations in seven countries on five continents, coupled with sourcing core raw materials from multiple suppliers in various countries, affords Lakeland with superior manufacturing capabilities and supply chain resilience when compared to our competitors who use contractors.

We believe that ownership of manufacturing is the cornerstone of building a resilient supply chain and providing high-quality products to our customers.

Having ten manufacturing locations in eight countries on five continents, and sourcing core raw materials from multiple suppliers in various countries affords Lakeland with superior manufacturing capabilities and supply chain resilience compared to our competitors who use contractors.

Additionally, our focus on providing customers with best-in-class service includes the strategic location of our sales team members.

Lakeland has 95 sales employees located in 24 countries selling into more than 50 countries globally.

Lakeland is committed to protecting the world’s workers, first responders, and communities while creating shareholder value.

Key elements of our corporate strategy include:

Creating a high-performance culture driven by our corporate values,

Investing resources in high-growth geographies and product categories,

Building a premier global firefighter safety brand through product and marketing enhancements,

Driving profitable growth in high-end chemical and limited-use/disposable protective clothing through product development, strategic pricing initiatives, channel diversification, and operations optimization, and

Acquiring companies that improve Lakeland’s competitive advantage in focus markets.

On December 16, 2024, the Company acquired U.S.-based Veridian Limited (Veridian) for cash consideration of approximately $26.1 million subject to post-closing adjustments and customary holdback provisions.

Founded in 1992, Veridian is a leading provider of firefighter protective apparel, including fire and rescue garments, gloves and boots, with an annual revenue of approximately $21 million.

Veridian has approximately 150 employees and is headquartered in Des Moines, Iowa.

On July 1, 2024, the Company acquired the fire and rescue business of LHD Group Deutschland GmbH and its subsidiaries in Hong Kong and Australia (collectively, “LHD”) in an all-cash transaction subject to post-closing adjustments and customary holdback provisions.

Total consideration was $16.3 million, of which $15.5 million was paid to retire LHD’s debt, $0.8 million was paid to the seller at closing, and $1.1 million remained unpaid subject to post-closing adjustments and customary holdback provisions.

LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment cleaning, repair, and maintenance.

Total consideration was $14.8 million, net of $1.5 million cash acquired, of which $15.5 million was paid to retire LHD’s debt and $0.8 million was paid to the seller at closing.

LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment, as well as decontamination, repair and maintenance services.

LHD has 111 employees worldwide and is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia.

2 unchanged sentences

(collectively, “Jolly”) in an all-cash transaction.

Total consideration was $9.6 million, of which $7.5 million was paid to the seller at closing, $0.6 million paid to retire the remainder of Jolly’s debt and $1.5 million remained unpaid subject to post-closing adjustments and customary holdback provisions.

Total consideration was $9.0 million, of which $7.5 million was paid to the seller at closing, and $1.5 million remained unpaid subject to post-closing adjustments and customary holdback provisions.

Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets.

1 unchanged sentence

Jolly’s primary customers are based in Europe.

On November 30, 2023, the Company acquired New Zealand-based Pacific Helmets NZ Limited (“Pacific”) in an all-cash transaction valued at approximately NZ$14,000,000 ($8.6 million) including assumption of debt, subject to post-closing adjustments and customary holdback provisions.

The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective helmets.

Headquartered in Whanganui, New Zealand, Pacific is a leading designer and provider of structural firefighting, wildland firefighting, and technical rescue helmets.

Our net sales attributable to customers outside the United States were $30.4 million and $16.6 million for the three months ended October 31, 2024 and 2023, respectively, and $78.5 million and $50.8 million for the nine months ended October 31, 2024 and 2023, respectively.

Our net sales attributable to customers outside the United States were $26.0 million and $22.0 million for the three months ended April 30, 2025 and 2024, respectively.

We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations.

For the nine months ended October 31, 2024, sales in Russia were approximately 2.6% of our consolidated sales and sales into Ukraine were not significant.

For the three months ended April 30, 2025, sales in Russia were approximately 1.4% of our consolidated sales and sales into Ukraine were not significant.

We do not have any capital assets in Russia.

Results of Operations

Three Months ended October 31, 2024, Compared to the Three Months Ended October 31, 2023

Net sales were $45.8 million for the three months ended October 31, 2024, an increase of $14.1 million or 44.5% compared to $31.7 million for the three months ended October 31, 2023.

Sales of our Fire Services product line increased $13.7 million due to $11.4 million in sales from LHD, acquired in July 2024, Jolly, acquired in February 2024 and Pacific, acquired in November 2023, and growth in the product line.

The significant increase in Fire Services was complemented by an increase in industrial sales of $0.4 million.

Gross Profit.

Gross profit for the three months ended October 31, 2024 was $18.6 million, an increase of $5.2 million, or 38.8%, compared to $13.4 million for the three months ended October 31, 2023.

Gross profit as a percentage of net sales decreased to 40.6% for the three-month period ended October 31, 2024, from 42.2% for the three months ended October 31, 2023.

Gross profit performance declined in the three months ended October 31, 2024 due to lower margins from LHD and Jolly and increased in-bound freight expense.

Operating Expense .

Operating expenses increased by $8.1 million, or 83.5%, from $9.7 million for the three months ended October 31, 2023 to $17.8 million for the three months ended October 31, 2024.

This increase is attributable to the acquisition of LHD, Jolly and Pacific which increased operating expenses by $2.9 million.

In addition, the Company incurred transaction expenses of $0.5 million, restructuring costs of $0.7 million, ongoing PFAS litigation costs of $0.2 million, intangible amortization of $0.3 million and $0.4 million of costs associated with the Monterrey facility.

The remaining increase was related to additional selling expenses including travel and trade shows of $1.5 million, professional fees and administrative expenses of $0.6 million offset by a reduction in foreign currency translation expense of $0.6 million.

During the quarter ended October 31, 2023, the Company evaluated the earnout consideration accrual related to the Eagle acquisition and reduced the accrual by $1.5 million, which was recorded as a reduction in operating expense.

Operating expenses as a percentage of net sales was 38.8% for the three months ended October 31, 2024, up from 30.7% for the three months ended October 31, 2023, primarily due to the factors noted above.

Operating Profit .

Operating profit was $0.8 million for the three months ended October 31, 2024 compared to operating profit of $3.6 million for the three months ended October 31, 2023, due to the impacts detailed above.

Operating margins were 1.8% for the three months ended October 31, 2024, as compared to 11.4% for the three months ended October 31, 2023.

Income Tax Expense .

Income tax expense consists of federal, state and foreign income taxes.

Income tax expense was $0.1 million for the three months ended October 31, 2024, compared to an expense of $0.9 million for the three months ended October 31, 2023.

The reduction in tax expense between the two periods is primarily a result of the decrease in pre-tax income.

The Company's effective tax rate for the third quarter of FY25 was 63.5% which differs from the U.S.

federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions, GILTI, and the impacts from stock compensation vestings during the quarter.

The Company's effective tax rate for the third quarter of FY24 was 26.4%, which differs from the U.S.

federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and GILTI.

Net Income (Loss).

Net income was $0.1 million for the three months ended October 31, 2024, compared to net income of $2.6 million for the three months ended October 31, 2023.

Nine Months ended October 31, 2024, Compared to the Nine Months Ended October 31, 2023

Net sales were $120.6 million for the nine months ended October 31, 2024 as compared to $93.4 million for the nine months ended October 31, 2023, an increase of 29.1%.

Our fire service product line increased by $21.8 million in the period due to the impact of the acquisitions of LHD, Jolly and Pacific which contributed $21.0 million in sales coupled organic growth of $0.8 million.

Sales of our woven product line increased $4.4 million due to strength in the Latin America market, primarily from Argentina.

Our remaining product lines delivered growth of $1.0 million.

Three Months ended April 30, 2025, Compared to the Three Months Ended April 30, 2024

Net sales were $46.7 million for the three months ended April 30, 2025, an increase of $10.4 million or 28.7% compared to $36.3 million for the three months ended April 30, 2024.

Sales of our Fire Services product line increased $10.5 million due to $9.8 million in sales from Veridian acquired in December 2024 and LHD acquired in July 2024, and $0.7 million growth in the product line.

Our Industrials product line sales in Q1 FY26 were in line with Q1 FY25 with a slight contraction of $0.1 million.

Gross Profit.

Gross profit was $50.0 million for the nine months ended October 31, 2024, an increase of $10.0 million, or 25.0%, from $40.0 million for the nine months ended October 31, 2023.

Gross profit as a percentage of net sales decreased to 41.5% for the nine months ended October 31, 2024, from 42.8% for the nine months ended October 31, 2023 due to lower margins from LHD and Jolly, increased in-bound freight expense, increase in deferred profit in ending inventory and amortization of the step up in basis of acquired inventory.

Gross profit for the three months ended April 30, 2025 was $15.6 million, a decrease of $0.6 million, or 3.7%, compared to $16.2 million for the three months ended April 30, 2024.

Gross profit as a percentage of net sales decreased to 33.5% for the three-month period ended April 30, 2025, from 44.6% for the three months ended April 30, 2024.

Gross profit performance declined in the three months ended April 30, 2025 due to revenue mix coupled with lower margins in our acquired businesses, higher manufacturing and freight costs.

Our margins in the acquired businesses were impacted by the amortization of the write-up in inventory as part of purchase accounting.

Operating Expense .

Operating expenses increased $17.9 million, or 58.3%, to $48.6 million for the nine months ended October 31, 2024 from $30.7 million for the nine months ended October 31, 2023.

The acquisitions of LHD, Jolly and Pacific accounted for $6.6 million of the increase in operating expenses.

The Company incurred $1.9 million in acquisition costs associated with these acquisitions.

In addition, the Company incurred ongoing PFAS litigation costs of $0.6 million, additional expenses related to the Monterrey facility of $0.4 million and restructuring costs of $0.6 million .

The impact of the adjustment to the earnout consideration accrual related to the Eagle acquisition was a reduction to operating expenses of $0.7 million for the nine months ended October 31, 2024 compared to a reduction of $2.7 million for the nine months ended October 31, 2023, which was recorded as a reduction in operating expense.

The remaining increase was related to additional selling expenses including, outbound freight, travel and trade shows of $3.2 million.

Administrative expenses including administrative salaries and expenses, professional fees, rent and bad debt increased $3.4 million offset by reduced foreign currency translation expenses of $0.8 million.

Operating expenses as a percentage of net sales was 40.3% for the nine months ended October 31, 2024, up from 32.9% for the nine months ended October 31, 2023.

Operating Profit .

Operating profit decreased to $1.4 million for the nine months ended October 31, 2024 from $9.3 million for the nine months ended October 31, 2023, due to the impacts detailed above.

Operating margins were 1.2% for the nine months ended October 31, 2024, as compared to 9.9% for the nine months ended October 31, 2023.

Income Tax Expense .

Operating expenses increased by $6.3 million, or 45.0%, from $14.0 million for the three months ended April 30, 2024 to $20.3 million for the three months ended April 30, 2025.

This increase is attributable to the acquisitions of Veridian and LHD which increased operating expenses by $2.8 million.

In addition, the Company incurred transaction-related expenses related to our acquisitions of $0.9 million coupled with severance costs of $0.6 million, costs of $0.2 million due to ongoing PFAS litigation and $0.6 million of costs associated with the Monterrey facility.

The remaining increase was related to additional selling expenses including travel and trade shows, increased outbound freight, professional fees and administrative expenses of $1.1 million.

During the quarter ended April 30, 2024, the Company evaluated the earnout consideration accrual related to the Eagle and Pacific acquisitions and reduced the accrual by $0.7 million, which was recorded as a reduction in operating expense.

Operating expenses as a percentage of net sales were 43.4% for the three months ended April 30, 2025, up from 38.5% for the three months ended April 30, 2024, primarily due to the factors noted above.

Operating Loss .

Operating loss was ($4.6) million for the three months ended April 30, 2025 compared to an operating profit of $2.2 million for the three months ended April 30, 2024, due to the impacts detailed above.

Operating margins were (9.9%) for the three months ended April 30, 2025, as compared to 6.1% for the three months ended April 30, 2024.

Income Tax Expense (Benefit) .

Income tax expense consists of federal, state and foreign income taxes.

Income tax expense was $0.1 million for the nine months ended October 31, 2024, compared to an expense of $2.7 million for the nine months ended October 31, 2023.

The Company’s effective rate was 24.3% and 29.5% for the nine months ended October 31, 2024 and 2023, respectively.

Income tax benefit was $1.2 million for the three months ended April 30, 2025, compared to income tax expense of $0.4 million for the three months ended April 30, 2024.

The income tax benefit is a result of the pre-tax operating loss in the three months ended April 30, 2025.

The Company’s effective tax rate for the first quarter of FY26 was 23.4% which differs from the U.S.

federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions.

The Company’s effective tax rate for the first quarter of FY24 was 19.0%, which differs from the U.S.

federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and the GILTI provision, and the earn-out adjustments related to the Pacific and Eagle acquisitions.

Net Income (Loss).

Net income decreased by 6.0 million to $0.4 million for the nine months ended October 31, 2024 from $6.4 million for the nine months ended October 31, 2023.

Net loss was ($3.9) million for the three months ended April 30, 2025 down from net income of $1.7 million for the three months ended April 30, 2024.

Liquidity and Capital Resources

At October 31, 2024, cash and cash equivalents were approximately $15.8 million, and working capital was approximately $95.7 million.

Cash and cash equivalents decreased $9.4 million, and working capital increased $12.5 million from January 31, 2024 due to the balance sheet fluctuations described below and the acquisition of LHD, Pacific and Jolly.

Of the Company’s total cash and cash equivalents of $15.8 million as of October 31, 2024, cash held in Latin America of $2.1 million, cash held in the UK of $1.5 million, cash held in Russia and Kazakhstan of $2.0 million, cash held in the EEC of $4.4 million, cash held in India of $0.9 million, cash held in Vietnam of $0.3 million, and cash held in Hong Kong of $0.2 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

When the Company repatriates cash from China, of the $1.3 million balance at October 31, 2024, there could be an additional 10% withholding tax incurred in that country.

Cash used in operations was $12.5 million due to net income of $0.4 million, non-cash charges of $3.4 million, offset by increases in working capital of $16.3 million, primarily due to a build in inventory in preparation for forecasted increase in sales in the fourth quarter of the year and the first quarter of fiscal 2026.

Net cash used in investing activities was $25.4 million which included the acquisition of LHD and Jolly which required net cash of $22.9 million and a further investment in Bodytrak’s convertible debt instruments of $1.0 million.

Capital expenditures were $1.5 million for the nine months ended October 31, 2024, primarily for manufacturing equipment.

Net cash provided by financing activities was $28.3 million for the nine months ended October 31, 2024, due to $29.9 million borrowed to fund the LHD and Jolly acquisitions offset by dividends of $0.7 million, term loan borrowings of $2.9 million to support Jolly operations, repayment of term loan borrowings of $0.4 million and repayments of our revolving credit facility of $3.0 million and $0.4 million in shares returned to pay income taxes on shares vested under our equity compensation program.

On July 1, 2024, the Company acquired the fire and rescue business of LHD Group Deutschland GmbH and its subsidiaries in Hong Kong and Australia (collectively, "LHD") in an all-cash transaction valued at approximately $16.3 million subject to post-closing adjustments and customary holdback provisions.

Total consideration was $15.9 million, net of $1.5 million cash acquired, of which $15.5 million was paid to retire LHD’s debt, $0.8 million was paid to the seller at closing, and $1.1 million remained unpaid subject to post-closing adjustments and customary holdback provisions.

LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment cleaning, repair, and maintenance.

LHD has 111 employees worldwide and is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia.

On February 5, 2024, the Company acquired Italy and Romania-based Jolly Scarpe S.p.A.

and Jolly Scarpe Romania S.R.L.

(collectively, "Jolly") in an all-cash transaction.

Total consideration was $9.6 million, of which $7.5 million was paid to the seller at closing, $0.6 million was paid to retire the remainder of Jolly’s debt and $1.5 million remained unpaid subject to post-closing adjustments and customary holdback provisions.

Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets.

The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees.

Jolly’s primary customers are based in Europe.

The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective helmets.

Headquartered in Whanganui, New Zealand, Pacific is a leading designer and provider of structural firefighting, wildland firefighting, and technical rescue helmets.

At April 30, 2025, cash and cash equivalents were approximately $18.6 million, and working capital was approximately $104.4 million.

Cash and cash equivalents increased $1.1 million, and working capital increased $2.8 million from January 31, 2025 due to the balance sheet fluctuations described below.

Of the Company’s total cash and cash equivalents of $18.6 million as of April 30, 2025, cash held in Latin America of $2.2 million, cash held in the UK of $2.5 million, cash held in Russia and Kazakhstan of $1.9 million, cash held in the EEC of $4.8, cash held in India of $0.6 million, cash held in Vietnam of $0.2 million, and cash held in Hong Kong of $0.1 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

When the Company repatriates cash from China, of the $1.8 million balance at April 30, 2025, an additional 10% withholding tax may be incurred in that country.

The Company expects to repatriate cash from China during FY 26 and in anticipation of doing so, has accrued withholding tax expense of $0.3 million as of April 30, 2025.

Cash used in operations was $4.9 million due to net loss of ($3.9) million, and an increase in working capital of $3.0 million offset by non-cash charges of $2.1 million.

Net cash used in investing activities was $1.2 million for capital expenditures for our new ERP system and replacement of manufacturing equipment.

Net cash provided by financing activities was $8.5 million due to $6.6 million borrowed under our credit facility to fund working capital increases and the addition of a $2.2 million working capital loan for Jolly to support their operations offset by dividends of $0.3 million, repayment of short-term borrowings of $0.2 million and $0.1 million in shares returned to pay income taxes on shares vested under our equity compensation program.

We believe our current cash, cash equivalents, borrowing capacity under our Loan Agreement, and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements (including planned capital expenditures) for at least the next twelve months.

However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.

On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (the “Lender”).

The Loan Agreement provided the Company with a secured $25.0 million revolving credit facility, which included a $5.0 million letter of credit sub-facility.

The Company could request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $30.0 million).

Borrowing pursuant to the revolving credit facility was subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap contracts.

The borrowing base limitation only applied during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeded 2.00 to 1.00.

The Loan Agreement permitted, without the prior consent of the Lender, acquisitions of a business or its assets by the Company or its subsidiaries if there was no default under the Loan Agreement and the aggregate consideration did not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.

On March 3, 2023, the Company changed the benchmark interest rate in the credit facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”).

The credit facility was to mature on June 25, 2025.

On November 30, 2023, the Company entered into Amendment No.

3 to the Loan Agreement by and between the Lender and the Company (the “Third Amendment”).

Pursuant to the Third Amendment, the Lender consented to the Company’s acquisition of one hundred percent (100%) of the equity interests of Pacific.

The Third Amendment further provided for certain amendments to the Loan Agreement to permit additional indebtedness to be made available to Pacific, to exempt Pacific from certain requirements of the Loan Agreement pertaining to subsidiary guaranty and asset pledges that would otherwise be required under the Loan Agreement and to waive the Company’s borrowing base limitations through January 31, 2024.

The Third Amendment also provided for the reaffirmation of representations, warranties and covenants under the Loan Agreement as are customary in connection with similar amendments of credit documents.

On March 28, 2024, the Company entered into Amendment No.

4 to the Loan Agreement by and between the Lender and the Company (the “Fourth Amendment”).

Pursuant to the Fourth Amendment, the Lender and the Company agreed to, among other things, (i) extend the expiration date of the credit facility to March 28, 2029, (ii) increase the availability under the revolving credit facility to $40.0 million with an accordion feature providing for the potential funding of an additional $10.0 million, (iii) remove the borrowing base component of the credit facility, and (iv) modify the interest rate based on Daily SOFR plus the Applicable Rate.

The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%.

In addition, the Fourth Amendment (i) modified the Funded Debt to EBITDA Ratio covenant so as not to exceed 3.5x (with step-downs to 3.25 and 3.0 in 2025 and 2026), (ii) modified the Basic Fixed Charge Coverage Ratio covenant to a minimum of 1.20x, (iii) includes a springing Asset Coverage Ratio covenant of at least 1.10x, but only to the extent that the maximum Total Leverage Ratio exceeds 3.00x at any reporting period, (iv) increases the sublimit for letters of credit to $10.0 million, and (v) imposes a floor to Daily SOFR of one percent (1.00%).

The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increased the size of Permitted Acquisitions, without prior approval from the Lender, to $17.5 million per occurrence and $35.0 million in the aggregate.

We were in compliance with all financial covenants of the Loan Agreement as of October 31, 2024.

However, our liquidity assumptions may prove to be incorrect, and we may need to utilize our available financial resources sooner than we currently expect.

On June 25, 2020, the Company entered into a Loan Agreement (the “Original Loan Agreement”) with Bank of America, N.A.

(“Lender”), as amended by Amendment No.

1 to the Loan Agreement, dated June 18, 2021 (“Amendment No.

1”), Amendment No.

2 to the Loan Agreement, dated March 3, 2023 (“Amendment No.

2”), Amendment No.

3 to the Loan Agreement, dated November 30, 2023 (“Amendment No.

3”), Amendment No.

4 to the Loan Agreement, dated March 28,

2024 (“Amendment No.

4”), and Amendment No.

5 to the Loan Agreement, dated December 12, 2024 (“Amendment No.

5” and, collectively with Amendment No.

1, Amendment No.

2, Amendment No.

3, and Amendment No.

4, the “Loan Agreement Amendments”;

and the Original Loan Agreement, as amended by the Loan Agreement Amendments, the “Amended Loan Agreement”).

The Amended Loan Agreement provides the Company with a secured revolving credit facility of up to $60.0 million of borrowings from December 12, 2024 through January 31, 2026 and of up to $50.0 million of borrowings from February 1, 2026 through January 31, 2027 (in each case, such limits remain subject to a reduction to no less than $40.0 million from the net proceeds of equity issuances if the Company raises capital during such periods).

The revolving credit facility includes a $10.0 million letter of credit sub-facility.

On January 24, 2025, as required by the Amended Loan Agreement, the Company used certain net proceeds of its equity issuance to reduce the principal amount outstanding under the Amended Loan Agreement.

As a result thereof, the maximum principal amount under the revolving credit facility was reduced to $40 million.

The credit facility matures on December 12, 2029.

Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of (i) the greater of the daily Secured Overnight Financing Rate (“SOFR”) or an index floor of 1% plus (ii) the Applicable Rate (as defined in the Amended Loan Agreement).

The Applicable Rate is based on a funded debt-to-EBITDA ratio (discussed below) and includes four different levels constituting a SOFR margin range from 1.25% to 2.00%.

All outstanding principal and unpaid accrued interest under the revolving credit facility are due and payable on the maturity date.

On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility.

The Amended Loan Agreement provides for a fee on any difference between the line of credit commitment and the amount of credit it actually uses, determined by the daily amount of credit outstanding during the specified period.

Such fee is calculated at the Applicable Rate and is payable quarterly.

The Company made certain representations and warranties to the Lender in the Amended Loan Agreement that are customary for credit arrangements of this type.

The Company also agreed to maintain, as of the end of each fiscal quarter a minimum “basic fixed charge coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.20x and a “funded debt to EBITDA ratio” (as defined in the Amended Loan Agreement) not to exceed 3.5x (with step-downs to 3.25x and 3.0x on February 1, 2026 and February 1, 2027, respectively), in each case for the trailing 12-month period ending with the applicable quarterly reporting period.

In addition, the Company has agreed to maintain a springing “asset coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.10x, but only to the extent that the maximum funded debt to EBITDA ratio exceeds 3.25x at any reporting period.

The Company was in compliance with all of its debt covenants as of April 30, 2025.

Stock Repurchase Program.

On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock.

On July 6, 2021, the Board of Directors authorized an increase in the Company’s stock repurchase program, under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock, which became effective upon the completion of the prior share repurchase program.

On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5.0 million of its outstanding common stock, which became effective upon the completion of a prior share repurchase program.

On December 1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program, under which the Company may repurchase up to an additional $5.0 million of its outstanding common stock.

No shares were repurchased in the nine months ended October 31, 2024 leaving $5.0 million remaining under the share repurchase program at October 31, 2024.

No shares were repurchased in the three months ended April 30, 2025 leaving $5.0 million remaining under the share repurchase program at April 30, 2025.

The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

Quarterly Cash Dividend .

On August 1, 2024, the Board of Directors declared a quarterly cash dividend.

The quarterly dividend of $0.03 per share was paid on August 22, 2024, to stockholders of record as of August 15, 2024.

On February 1, 2025, the Board of Directors declared a quarterly cash dividend.

The quarterly dividend of $0.03 per share was paid on February 24, 2025, to stockholders of record as of February 17, 2025.

Capital Expenditures.

Our capital expenditures of $1.5 million for the nine months ended October 31, 2024 principally relate to capital purchases for replacement of manufacturing equipment.

We anticipate FY25 capital expenditures to be approximately $2.0 million as we invest in strategic capacity expansion and replace existing equipment in the normal course of operations.

We expect to fund the capital expenditures from our cash flow from operations.

Our capital expenditures for the three months ended April 30, 2025 of $1.2 million principally relate to capital investment in our new ERP system and some replacement equipment for our manufacturing sites.

We anticipate FY26 capital expenditures to be approximately $3.0 million to replace existing equipment in the normal course of operations, expand our fire services products manufacturing capabilities and invest in our new ERP system.

We expect to fund the capital expenditures from our cash flows from operations.

The Company may also expend funds in connection with potential acquisitions.

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Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2025 Form 10-K.

There have been no significant changes in the application of our critical accounting policies during the nine months ended October 31, 2024.

There have been no significant changes in the application of our critical accounting policies during the three months ended April 30, 2025.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis